JAPAN Trends and Developments Contributed by: Hajime Ueno, Masaru Shibahara and Takahiro Kato, Nishimura & Asahi (Gaikokuho Kyodo Jigyo)
Nishimura & Asahi (Gaikokuho Kyodo Jigyo) Otemon Tower, 1-1-2 Otemachi Chiyoda-ku Tokyo 100-8124 Japan
Tel: +81 3 6250 6200 Fax: +81 3 6250 7200 Email: h.ueno@nishimura.com Web: www.nishimura.com
Overview In Japan, stock prices are rising steadily, but the yen remains weak. Inflation is ongoing and real wages, adjusted for inflation, show no signs of increasing. In addition, the labour shortage due to low birth rates and an ageing population remains one of the primary reasons the Japanese economy has not improved. Increasing raw material costs, tariffs, and trade politics are other causes of ongoing economic uncertainty. Meanwhile, the debt balance of Japanese corpo - rations has been increasing. According to current statistics, the debts owed by Japanese companies other than financial institutions reached approxi - mately JPY700 trillion in September 2024, which is a huge leap (an increase of JPY120 trillion) from the approximately JPY578 trillion in debt that existed in December 2019 (before COVID-19). With revisions to monetary policy potentially increasing the borrowing interest rates, there is growing concern that the debt burden will become a hindrance to business activities and profitability, causing companies to miss opportu - nities for business growth and an increased number of bankruptcies. Three new laws were promulgated recently in Japan, which will come into effect in the very near future. As summarised and explained below, each of them could have an impact on debt restructuring in Japan, and hopefully lead to improvements in the Japanese economy.
The Act on Financial Debt Adjustment Procedures for Enterprises to Facilitate Business Recovery (“Early Business Recovery Act”) Purpose In Japan, court supervised restructuring procedures, such as civil rehabilitation, are announced publicly, and all claims, including trade debts, are subject to debt adjustment, which is likely to have a significant negative impact on the value and profitability of the subject business. Out-of-court restructuring proce - dures, such as Turnaround Alternative Dispute Reso - lution (ADR), which are not publicly announced, have less impact on commercial transactions. However, they require unanimous consent from all relevant cred - itors, which means the procedures can be prolonged and can hinder early business recovery. In order to facilitate early business recovery for enter - prises at risk of financial distress, it was necessary to establish a new procedure, to allow enterprises at risk of falling into financial distress to pursue an early recovery and avoid damage to business value via a framework that allows for debt adjustment prior to insolvency, based on a majority vote of creditors and subject to court approval. Summary Application for the procedure Any business entity (from corporations to sole proprie - tors) can apply for the procedure by filing an applica - tion with a designated third-party organisation (“Des - ignated Organisation”).
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